A Case of the (Unemployment) Mondays

Though we always view government economic releases with a skeptical eye, it’s hard to argue Friday’s employment data were anything but pretty darn good.

Yet some are still drawing a downcast conclusion from Friday’s news, arguing the government needs to “do something” about unemployment. And implying more government spending is necessary. Now, to be sure, the percentage of Americans still unemployed is higher than the long-term average, and lower would inarguably be better. But if one thing’s certain about recent unemployment trends, it’s that they don’t seem much tied to government spending growth.

In absolute terms, we’re the first to admit the government spends a lot, and we wish they’d spend less overall. However, as a percent of GDP, government spending has noticeably shrunk over the past year (detracting from overall GDP growth, interestingly). Meanwhile, job rolls are expanding. Furthermore, government employment’s decreased—meaning labor market improvements have been confined largely to the private sector.

So the government is spending less today than a year ago as a percent of national product, yet employment has risen. Hence, we’re struggling to find a strong causal relationship between government growth or spending and employment improvement. In other words, increases in government employment and spending probably don’t have much positive impact, and decreases likely don’t do much harm.

Then, some argue something bigger should have been done long ago—implying recent improvements would have happened sooner, been bigger, etc. Sure, you could argue that. And someone else might argue if government spending were shrinking (as a percent of GDP) faster, employment might be growing faster. Neither can be proved or disproved.

Then there’s the question of what exactly it is the government should be doing. It doesn’t seem Friday’s strong report was particularly tied to any recent or direct government action in particular—so it’s tough to know what should’ve been done months ago to get us where we are now. (Not to mention such arguments are entirely backward-looking, making them less helpful in formulating forward-looking policy recommendations.) And more importantly, how would we have known it was that thing we did that helped pull unemployment down, as opposed to any of a myriad of other factors? The reality is the American economy’s an incredibly complex animal—operating in a similarly complex, fully global world. Meaning there’s a near-infinite number of potential inputs to consider when attempting to strip out what has or hasn’t caused recent employment improvements.

But one thing does seem certain: The fact more Americans are employed today has followed several months of other positive economic data—like strong and growing manufacturing and service sectors, the nascent natural gas boom, growing consumer spending, continued (and accelerating) US GDP growth, solid corporate earnings growth and globally increasing free trade. (Roll that all up under “economic growth” if you want.) To our way of thinking, that highlights the fact unemployment’s a late-lagging indicator that recovers at its own unpredictable pace once growth is well on it’s way—a point we’ve made before.

All of which makes predictions of doom and gloom from American attempts at “austerity” a bit overwrought in our view. (We also question how some are defining “austerity”—the US government hardly seems that thrifty to us.)

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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